DBS

DBS: Key highlight of the day.
DBS has entered into a conditional share purchase agreement with Fullerton Fund (Temasek) to acquire a 67.37% stake in Bank Danamon Indonesia for Rp45.2 trillion (approximately S$6.2b at a price of Rp7,000/Danamon share. The total consideration would be paid in the form of 439m new DBS shares at an issue price of S$14.072/ new DBS share.

Upon completion of proposed acquisition, DBS will launch a mandatory tender offer (MTO) to acquire remaining listed shares of Danamon for Rp7,000/Danamon share. The price of Rp7,000/Danamon share represents a premium of 56.3% over its VWAP of Rp4,480, and also values Bank Danamon at 2.6x P/B.

Assuming full acceptance of the MTO, proposed acquisition value is approximately Rp66.4 trillion (S$9.1b). Of the total acquisition value, Rp45.2 trillion (approximately S$6.2b) will be paid to Fullerton Fund in the form of new shares and the remainder to the other shareholders in cash via the MTO.

On an unaudited proforma basis assuming full acceptance of MTO (based on FY11 financials), acquisition is expected to reduce DBS’ core tier 1 ratio from 11.0% to 10.3%, tier 1 ratio from 12.9% to 12.1% and total CAR from 15.8% to 14.8%. Proposed acquisition is expected to be accretive to DBS’ EPS and ROE by 2015. Integration will commence in 2013 and synergies are expected to be progressively phased in from 2014 and fully realized by 2015.

As a rule of thumb, Indo’s biggest bank Manidiri trades at 2.6x P/B and second biggest bank BCA trades at 4.7x P/B. Peers UOB and OCBC has stakes in Indo banks, namely via OCBC NISP and UOB Buana.